Caledonia Mining hedges 15,000oz of gold production

HARARE, February 11 (The Source) – Canadian-listed Caledonia Mining, which owns Blanket Mine in Zimbabwe, on Thursday said it had sold forward 15,000 ounces of gold production under a six-month collar and cap arrangement.

Caledonia said the hedge arrangement, which set up the gold price between $1,050 per ounce and $1,080 per ounce would give it greater clarity over cashflows until July 2016 when production at its Blanket mine is expected to ramp up.

The mine has completed the first year of a six-year investment programme under which it intends to invest $70 million from 2015 to 2021 and increase production to approximately 80,000oz of gold annually by 2021. It said it now expects to spend $45 million in capital expenditure in the three years 2015 to 2017, lower than the $50 million envisaged when its revised investment plan was announced in October 2014.

“The hedge comprises a series of weekly contracts. If the gold price at the end of each contract falls below the collar value, Caledonia will receive the value of the shortfall below the collar multiplied by the hedged ounces,” said Caledonia in an update.

“If the gold price at the end of each contract falls between the cap and the collar value, Caledonia will pay to the hedge counterparty the excess over the collar value multiplied by the hedged ounces. If the gold price at the end of each contract exceeds the cap value, Caledonia will pay to the hedge counterparty the difference between the cap and the collar multiplied by the hedged ounces.”

The hedge arrangement is a financial instrument between Caledonia and a financial counterparty although Blanket will continue to sell its gold to Fidelity Printers and Refiners in Zimbabwe in accordance with local law.

Caledonia said it intends to maintain its existing dividend policy of paying 1.125 US cents per quarter.

The Canadian junior miner owns 49 percent of Blanket Mine, with the remainder held by locals.